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Whitestone REIT  (NYSE:WSR)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Whitestone REIT Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kevin Reed, Director of Investor Relations. Please go ahead, sir.

Kevin Reed -- Director of Investor Relations

Thank you, Kevin. Good morning, and thank you for joining Whitestone REIT's 2018 fourth quarter and year-end earnings conference call. Joining me on today's call are Jim Mastandrea, our Chairman and Chief Executive Officer and David Holeman, our Chief Financial Officer. Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties and other factors. Please refer to the Company's earnings press release and filings with the SEC, including Whitestone's most recent Form 10-Q for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, February 28, 2019. The Company undertakes no obligation to update this information.

Whitestone's fourth quarter earnings press release and supplemental operating and financial data package have been filed with the SEC, and available on our website, www.whitestonereit.com in the Investor Relations section. During this presentation, we may reference certain non-GAAP financial measures, which we believe allow investors to better understand the financial position and performance of the Company. Included in the earnings press release and supplemental data package are the reconciliations of non-GAAP measures to GAAP financial measures.

With that, let me pass the call on to Jim Mastandrea.

James C. Mastandrea -- Chairman and Chief Executive Officer

Yeah. Thank you, Kevin, and thank you all for joining us on our 2018 fourth quarter and year-end conference call. Today, Dave and I will provide highlights for 2018, that includes progress toward our long-term goals, success with our unique E-Commerce resistant strategy, and our performance since our IPO, and a look ahead to 2019. Dave will provide details on the quarter and discuss the restatement related to our ownership interest in Pillarstone.

As a background to my remarks, our accomplishments in 2018 were significant given the distraction of a costly and time-consuming proxy contest, the disruption in the retail industry and its contagion impact on retail real estate in a rising interest rate environment.

With that, I have three themes that I would like to share with you today; maintaining our commitment to achieving our long-term goals, our successful implementation of our E-commerce resistant strategy, and our process of creating long-term value for our shareholders. The first thing, I would like to share is our commitment to maintaining and growing a healthy and vibrant company in the best way we can to continue to drive long-term value for our shareholders. And know that our team is dedicated to achieving these goals that we communicated at the beginning of 2018.

Our investment strategy is simple, high-quality properties in markets we know well and make them better. A property that's worth owning is worth taking care of, and never lose sight of the consumer. This strategy has proven the best way to achieve success in both good and turbulent times and that led us to some remarkable industry-leading results. The process of acquiring properties in exceptional markets that we know and making them better, will always be the primary engines of our long-term economic growth. Our work is to communicate the value enhancement process that we have and have created to the marketplace.

Second theme I'd like to share is, our early recognition in response to the E-commerce disruption was deliberate. We focused on the consumer and the delivery system of retail goods shifted and provided them services. Our deep dive into the research and analytics gave us a roadmap to address consumer service basically. Our research showed us trends and linkages to the consumer that were somewhat time-sensitive and applied to a consumer base that varies from millennials to baby boomers within all our markets. We link this powerful information to prospective tenants who were primarily entrepreneurs, and through them executed leases to meet these service needs.

By choosing the right tenant with lease terms that are mutually beneficial, we established the foundation to provide financial viability and longevity to and within our communities. We now have over 1,300 tenants in Whitestone that provide the kitchen, living room, home offices, exercise rooms, cleaners, beauty salon, high life entertainment, emergency medical treatment, and on and on and on like the very services that most of you on this call still can use.

My third and final theme is our long-term value creation. The selection of properties and the integration of our business model has driven value creation and will continue to do so. We began with a $150 million of eclectic asset and the strategy that was contrarian to most retail real estate owners, and began scaling its business utilizing retail real estate under the public market umbrella. It has been eight years since our IPO and we now have a portfolio of high-quality properties in great markets with an estimated real estate value of approximately $1.5 billion in business-friendly state of Texas and Arizona.

The markets we're in, are the highest-growing markets in the country, that includes Houston, Dallas, Fort Worth, Austin, San Antonio, Phoenix, Mesa Gilbert, Chandler and Scottsdale. Creating long-term enterprise value is clearly a defined process that includes the timely synchronization of buying properties, strategically repositioning, operating and selling and judiciously integrating capital.

Some of our highlights include the disposition of five properties that were non-core or had limited upside, which included the three from our investment in Pillarstone for $29 million, resulting in a net profit of $11.3 million. Strengthening our balance sheet with an expanded upsized credit facility, with improved term and 70% of our debt locked in with fixed rate, upgrading our overall quality of our portfolio and achieving same-store net operating income growth of 3.3%, annualized base rent increases of 3.3% per square foot and an occupancy growth of 30 basis points. Our work is making progress as we've achieved D&A cost reductions and improvement in our debt leverage ratios. We are optimistic about 2019 with a pipeline of development and redevelopment opportunities in our portfolio, including newly entitled properties, out parcels and the vacant land. We have an acquisition pipeline with sellers interested in exchanging properties for operating partnership units and an experienced leasing team that is energized. We expect progress to continue as we have over the past eight years of new resources.

Key to our value proposition is our people and it's management's responsibility to assure our shareholders that we are developing future managers and leaders. Since our beginning, we have instituted management training at all levels with our signature program being REED, which stands for Real Estate Executive Development program. At the senior and regional level, as we look toward our first scholar program in conjunction with the Jones Graduate School of Business with Rice University. Along with our training and development programs, every single associate in Whitestone is a Whitestone shareholder.

With that, I'd like to conclude 2018 was a year that we continued to make progress toward our long-term goals. We continued to strengthen our E-commerce resistant business market and we continue to create value within our portfolio. We expect 2019 to continue to improve occupancies, operating margins and net operating income as we expand our footprint.

With that, I'll now turn the call over to Dave. Dave?

David K. Holeman -- Chief Financial Officer

Thanks, Jim. First, let me address the 2018 quarterly restatement we announced last night. I think it would be helpful for me to give a brief summary. December of 2016, Whitestone contributed 14 non-core properties, the Pillarstone OP for aggregate consideration of $84 million. consisting of OP unit and the assumption of $65 million in debt. Both contribution of the asset, Whitestone owned 81.4% of Pillarstone OP. Prior to 2018, we accounted for our 81.4% ownership of these properties under the profit-sharing method, which required us to continue to recognize the asset and the liability of Pillarstone in our financials and defer the gain of approximately $19 million from the original contribution. In January 2018, Whitestone adopted the new revenue recognition standard and evaluated the transaction based on those standard. Based on consultation of advisors, and ultimately our judgment regarding the control criteria under those revenue recognition standard, we concluded that the transfer of the control criteria has not been met and we should continue to recognize those assets and liabilities of Whitestone in our financial and defer any gain from the contribution.

In August of 2018, we received a comment letter from the SEC regarding our application of the new revenue recognition standard, related to this transaction. After numerous communications with the SEC staff, in February of 2019, the staff informed the Company that it objected to our conclusion regarding the assessment of the transfer of control criteria in Topic 606 with respect to the contribution and objected to the Company's continued recognition of the underlying asset and liabilities associated with the contribution subsequent to January 1, 2018.

Accordingly, the Company has determined it will restate the three previously issued 2018 quarterly financial and will do so in our Form 10-K to be filed prior to March 18, 2019. Because this change from the profit-sharing method is only applicable for periods ending after giving effect to the implementation of Topic 606, no periods prior to January 1, 2018 are affected by this change.

As a result of the restatement, Company will derecognize the underlying assets and liabilities associated with the contribution as of January 1, 2018 and will recognize the Company's investment in Pillarstone OP under the equity method. The 2018 year-end financials presented in our press release and discussed today, reflect the new accounting treatment and reflect an adjustment to increase our January 1, 2018 retained earnings by $19.1 million.

For the nine months ended September 30, 2018, we expect the restatement to reduce revenue and expenses by $11.3 million and $10.2 million respectively, and increase equity in earnings of real estate partnership by $1.8 million, resulting in a $600,000 increase to net income. The adjustment in the quarters are roughly one-third of those amounts and we expect the restatement to favorably impact quarterly FFO by nominal amount.

In light of these facts and determination, we are in the process of evaluating the effectiveness of our internal controls over financial reporting and disclosure controls and procedures. This evaluation could result in the identification of one or more material weaknesses that impact the Company's determination of the effectiveness of those controls for previously reported period and the year.

Now let me provide a few details from our financial and operating results for the quarter and year. As Jim commented, in 2018, we had to overcome several challenges and we were able to make progress on a few of our key metrics, if not all. While our 2018 funds from operations core per share reflects a decrease from 2017, we believe the progress we have made this year which includes upgrading the portfolio through selective dispositions, improving our debt structure to reducing leverage, increasing tenure and fixing the rate on a larger percentage of our debt, reducing our G&A cost and enhancing our corporate governance, will all result in long-term value creation for our shareholders.

Funds from operations per share was $0.94 for 2018, an increase of $0.01 or $0.93 in 2017. This per share increase was largely driven by same-store growth of 3.3% for the year and reduction in our share-based compensation expense of $3.7 million, and lower acquisition cost. The items increasing funds from operations were offset by higher borrowing costs, lower NOI from our 2017 acquisition, increases in our other general and administrative costs of $1.3 million, and proxy contest professional fees of $2.5 million.

We report funds from operation core, adjusting the NAREIT definition by excluding share-based compensation, proxy contest professional fees and early debt extinguishment costs in 2018, and excluding share-based compensation and acquisition cost in 2017. Reflecting these adjustments, funds from operation core was $1.16 for 2018, down $0.09 from 2017.

Our same-store net operating income growth was a strong 3.3% for the year, but reduced to 0.6% for the second half of 2018 with the inclusion of our May 2017 acquisition in our same-store pool. The second half same-store growth is adjusted to approximately 1%, taking into account fourth quarter adjustment relating to tenant write-offs and TAM true-ups, which are not expected to repeat.

Occupancy grew 30 basis points from year-end 2017, but was down 40 basis points from last quarter. This was largely driven by the move-out of a grocer in our Phoenix market, which was on a low rent roundly. We believe this actually will turn in quite positive for the Company in the coming years. For terminating this lease, Whitestone received the building and improvement on the land that were previously owned by the grocer. Whitestone expects to break this 47,000 square foot space into smaller spaces and lease at a much higher rate per square foot than the big box ground lease.

Rental rates continued to expand with our ABR at $19.35 at year-end compared to $18.97 in Q3 and $18.82 a year ago. Our leasing activity in 2018 with robust, with leasing spreads up 7% on new leases and a 11.1% on renewal leases, for a blended increase of 10.3%. Our weighted average lease term was 4.4 years, our contractual rate was (inaudible) which is 5% higher in our in-place ABR at year-end.

On the cost side, our fourth quarter G&A expenses were $1.1 million or 17% lower than a year ago. Our annual G&A cost adjusting for proxy contest cost in 2018 and acquisition expenses in 2017, were $1.8 million or 8% lower for the full year. Our interest expense was $600,000 higher in the fourth quarter of 2018 than a year ago. This was driven by a 1% increase in our variable rate debt. For the year, our interest expense was $3.8 million higher than 2017. Approximately half of this increase for the year is a result of rising interest rate.

As of today, we have approximately 70% of our debt at fixed rate and intend to increase this percentage to 85% in Q1 of 2019. Subsequent to year-end, we amended our credit facility increasing the overall size to $515 million, improving the pricing and terms, extending the overall term and fixing rates on an additional $55 million of variable rate debt.

We are providing our initial financial guidance for 2019. Our guidance reflects management's view of current and future market conditions, as well as the earnings impact of events referenced in our earnings release and supplemental data package. This guidance does not include the operational or capital impact of any future unannounced acquisitions or dispositions. The assumption for our 2019 guidance include same-store net operating income growth 1.5% to 2%; year-end occupancy of 90% to 92%; and an average interest rate on our debt for 2019 of 4.3%. We project net income per share to be in the range of $0.21 to $0.25; funds from operations to be in the range of $0.90 to $0.94 per share; and funds from operations core to be in the range in the $1.06 to $1.10 per share. Although we don't give guidance on a quarterly basis, given we are two-thirds of the way into our first quarter, I would like to highlight the fact that the first quarter typically has higher professional and accounting fees, relative the other follow-on orders.

And with that, Jim and I will be happy to take your questions.

Questions and Answers:

Operator

(Operator Instructions) We will now take our first question from Craig Kucera of B. Riley FBR. Please go ahead.

Craig Kucera -- B. Riley FBR Inc. -- Analyst

Hi. Good morning, guys.

James C. Mastandrea -- Chairman and Chief Executive Officer

Good morning, Craig.

David K. Holeman -- Chief Financial Officer

Yeah.

Craig Kucera -- B. Riley FBR Inc. -- Analyst

I wanted to start with some of the assumptions in guidance. With your average interest rate, I think you're looking at something like a 4.3% kind of what is -- I think in the fourth quarter, you were at -- about 3.9% on your fixed rate, you had the line. I guess, are you assuming terming out? I know you mentioned taking things from 70% to 85%, can you just provide a little more color on what that assumption is?

David K. Holeman -- Chief Financial Officer

Sure. I think a couple of factors Craig. As we mentioned, obviously looking to term out and fix the rate on about another 15% of our debt. And then secondly, we are building an increased assumption on the remaining variable rate debt as well.

Craig Kucera -- B. Riley FBR Inc. -- Analyst

And what is that assumption? I think the market has kind of assumed that the Fed might be done raising rates?

David K. Holeman -- Chief Financial Officer

I think we've assumed kind of one rate increase within our projections.

Craig Kucera -- B. Riley FBR Inc. -- Analyst

Okay. And from the standpoint of the Pillarstone contribution going forward, can you give us some color on sort of -- post the assets that were sold, what the quarterly or annual income statement impact is expected to be?

David K. Holeman -- Chief Financial Officer

Maybe I -- to make sure I understand your question, I think, obviously, the guidance we've given reflect the disposition of assets that we've done this year. So to your question beyond that, Craig -- to make sure I understand it?

Craig Kucera -- B. Riley FBR Inc. -- Analyst

Yeah well, I mean, you're now reporting it on the equity method and I'm just trying to determine what the net impact of that will be on a quarterly or annual basis.

David K. Holeman -- Chief Financial Officer

I think the change in accounting will have minimal impact on our financial results. It's largely a presentation of Pillarstone under the equity method versus grossing up under the profit-sharing method. We did -- it showed the impact of -- it did show impact of our 2018 disposition I think in our 2019 guidance and sup data.

Craig Kucera -- B. Riley FBR Inc. -- Analyst

Okay, and just from the standpoint of trying to -- we have the Pillarstone rents, but we don't have the expenses as we kind of think about how to consider net asset value calculations going forward. Do you have a sense of what the operating expense is for the existing assets or maybe a operating expense margin that we can consider?

David K. Holeman -- Chief Financial Officer

I think the results represented in our fourth quarter reflect the new method of accounting, but those would be the kind of the expected results going forward, the expected margins you see in revenue levels, et cetera.

Craig Kucera -- B. Riley FBR Inc. -- Analyst

All right, thanks.

James C. Mastandrea -- Chairman and Chief Executive Officer

Welcome.

Operator

We will now take our next question from Anthony Hau of SunTrust. Please go ahead.

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

Going morning, guys. You know 2019 same-store NOI is expected to be lower than previous years. Can you guys provide some more color on the underlying assumptions in terms of occupancy, lease spreads, rent bumps and bad debt reserve?

David K. Holeman -- Chief Financial Officer

I'm sorry, would you repeat the first part of your question. I heard the end, I just didn't hear the very first part.

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

Sure. So '19 same-store NOI guidance is expected to be lower than in previous years. Can you just provide more color on the underlying assumptions in terms of occupancy, lease spreads, rent bumps and our bad debt reserves?

Unidentified Speaker --

Sure. So 2019 we've given -- in our guidance, we've given the assumptions regarding same-store growth of a 0.5% to 2%. I think as I mentioned, our same-store growth was 3.3%, but obviously, each period is reported as a different pool of same-store asset based on ownership assets of the entire period. Our same-store growth for the second half of the year, including our 2017 acquisitions was 1%, though we reflected that -- inclusion of those assets in our expectation of same-store growth in 2019. As far as occupancy, I think we've given guidance of 90% to 92% and then from -- those are probably the two largest drivers of our assumptions regarding NOI for 2019. Now bad debt, we -- on the bad debt side, we don't expect any significant difference from our current levels. We continue to see that improve slightly basically flat year-over-year.

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

And typically, how much do you have baked in? Is it 100 bips of revenue?

David K. Holeman -- Chief Financial Officer

Typically, how much do we do what?

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

How much bad debt reserve was embedded in the same-store NOI, is it 100 bips of gross revenue or 75 bips?

David K. Holeman -- Chief Financial Officer

Our bad debt is generally run in 1% to 2% of revenue. But I think we clearly show that in our quarterly financials, you'll see bad debt has typically been in the 1% to 2% of revenue.

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

Got it. And can you guys provide more color on why the leasing spreads were so weak this quarter? And how should that trend heading into '19?

David K. Holeman -- Chief Financial Officer

I think the first thing is just the inclusion of some 17 acquisitions into that pool. One of the things that typically happens is, Whitestone will acquire a property, and then it takes us a bit of time to apply our model and to really begin to drive rates. So the largest change in the second half of the year was the inclusion of the 17 acquisitions in the pool. I did mention in the fourth quarter, there were about $250,000 of the things that we don't expect to repeat related to move-outs then and some TAM true-up.

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

Got it. And the increased share count in '19, is that caused by options and the money or are you guys planning to raise equity?

David K. Holeman -- Chief Financial Officer

Yes, the share count assumes that the -- related to the additional dilutive impact of shares in '19 over what was out there today. So it's not any assumption of raising additional shares.

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

Got it. Thanks.

Operator

(Operator Instructions) We will now take our next question from John Massocca of Ladenburg Thalmann. Please go ahead.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Good morning.

James C. Mastandrea -- Chairman and Chief Executive Officer

Good morning, John. How are you?

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Good. So, the $65 million of debt that you swapped out kind of subsequent to quarter end, what was the rate on that?

David K. Holeman -- Chief Financial Officer

So it was -- so I think you are referring to Pillarstone's debt that no longer is on our balance sheet. That had kind of three pieces of debt. The first one was two pieces of mortgage debt, which are at -- I think roughly $26 million of it is in the 4% range, $16 million of it is in the -- right at 5% and then the balance was the $6 million amount of Whitestone, which is roughly 4%.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

And then the -- kind of interest (inaudible) company loan between you and Pillarstone, what's the long-term plan for that? Is that the you sell asset as the Pillarstone sells assets to continue paying that off? Just any color you can provide there and how maybe that gets resolved going forward?

David K. Holeman -- Chief Financial Officer

Sure. I think as we created, the original contribution involved about $15 million and $16 million of loan from Whitestone to Pillarstone that was paid down to approximately $6 million at the end of the year, and we expect to continue to further -- to have that paid down and to further remove ourselves from the Pillarstone assets.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Okay. And is there anything other than the -- the kind of grocer moving out that you mentioned, that is driving kind of the occupancy outlook going forward with any other tenants or anything maybe in the lease roll that's coming up here in '19, or you really see some expected move-outs? Just any color there would be helpful.

David K. Holeman -- Chief Financial Officer

John, I think as you guys all know, our tenant mix is -- has a lot of diversity. Our largest tenant is about 3%. So there is no -- so typically, we renew a lot of tenants each year and then provide a lot (ph) activities, but there's nothing in particular, no large move-outs we are expecting, obviously in our portfolio. We turn in a fair amount of portfolio each year.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Okay and then lastly, maybe with regards to kind of your conversations with the SEC, is there anything maybe besides kind of the differing interpretation of the rules around Pillarstone that kind of cause them to -- objects to how you are classifying personal for accounting reasons? And just kind of thinking more as you go forward and you kind of examine the effectiveness of your controls over accounting, is there anything else that was kind of highlighted or flagged that maybe we should know about, or was it just pretty much simply this issue and there was a divergence in opinion as to what -- how (technical difficulty) for this entity?

David K. Holeman -- Chief Financial Officer

I think ultimately, the Company made a determination to involve judgement around the control. Yes, we objected to that judgement and we are very clear on that, and so there's really nothing else there. As far as the evaluation of our controls, we will clearly look at our controls over financial reporting and disclosures, and a step whether they were affected.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

All right. That's it for me. Thank you very much.

James C. Mastandrea -- Chairman and Chief Executive Officer

All right, thanks John.

Operator

We will now take our next question from Anthony Hau of SunTrust. Please go ahead.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Hey, this Ki Bin. Good morning, everyone. Just wanted to make some comments about the SEC and evaluating the control of them and disclosures, I guess a couple of questions. One, is that 100% self-evaluating or self-policing on the accounting controls? Second, is there ongoing -- is there going to be ongoing dialog or communication with SEC regarding the other control?

David K. Holeman -- Chief Financial Officer

Thanks, Ki Bin. Obviously with I can't speak to the SEC's actions going forward. I'm not aware of any ongoing dialog we would expect to have with the SEC. As far as the evaluation of control that is conducted by the Company, obviously participation of the Executive Officers in that is going as we like it.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And should we -- is there any impact to -- at previous quarter's FFO per share from the whole accounting, reshuffling with Pillarstone?

David K. Holeman -- Chief Financial Officer

There is not. I think the impact is -- that, that is -- it's small. It's very, very small impact to FFO. So for the -- for the year there will be -- mitigated the impact of revenue and expenses to net income. The impact for the previous three quarters of the year is nominal on a -- nominal on a dollar basis and very nominal on a share basis. And it will be nominally accretive, but very small.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And in terms of like -- just the background on the deal you guys sold, I believe 20% of it, but that was to the CEO and maybe a couple of Board members. At the end of the day, when everything that's happened, was it really worth it to do that kind of minor transaction?

David K. Holeman -- Chief Financial Officer

Yes.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

And I guess what was the overall goal?

David K. Holeman -- Chief Financial Officer

Sure. Thanks for your question Ki. I think we have clearly communicated previously that transaction and the goals of Whitestone. I don't believe (technical difficulty) is going to give you some more time to go back and reimagine (ph) all those things that have been previously communicated and discussed.

James C. Mastandrea -- Chairman and Chief Executive Officer

Yes, I'd like to make a comment on that. See Ki Bin, I know we talked about this sometime ago and you've always expressed an interest that you'd like to see Whitestone become a pure play. So we had approached it that way of bringing -- getting Whitestone to become a pure play without the nature of fire selling the assets, because at the time we looked at the transaction, they were valued relatively low and we didn't think that was fair to the Whitestone shareholders to let that -- the profitability of those assets seep out of our hand. So what we did is, we want to investment bankers and they looked at all the strategic alternatives available to us and recommended that we could do a transaction like this with no future liability from Whitestone, by spinning off Pillarstone assets like that and the future liability to adopt any of those assets really was in the hands of Pillarstone, which made it kind of a no-risk situation with an -- we getting the best price out of it at the beginning of the transaction and then profiting further in 80% of the development risk. The SEC rulings brings us one stock close to becoming a pure play. We now only have about $6 million left in debt that is owed to Whitestone from Pillarstone, yet Whitestone has 80% interest in all of the upside in Pillarstone. I hope that's helpful for you to understand it.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Yes. That helpful. And same-store NOI, you mentioned the (inaudible) loss in the fourth quarter. I'm just curious how that -- is there any kind of follow-on impact to co-tenancy to other retailers in that center, and how does that configure into your guidance, if there is one?

David K. Holeman -- Chief Financial Officer

Yeah, there is no impact in community-centered business center. And I think as I communicated, it was a low -- lower rent ground lease. And so, there's really no impact to any of the centers and the impact of that is all built into our guidance.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

All right, thank you.

Operator

We will now take our next question from John Massocca of Ladenburg Thalmann. Please go ahead.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Just two quick kind of follow-ups from me. One is, on the G&A front, understanding there is going to be some potential seasonal uptick in 1Q, is there also potential for maybe some kind of one-time-ish G&A associated with kind of the examining of the effectiveness of controls and with the -- the dealing with the SEC as you guys have kind of gone through here in 1Q?

David K. Holeman -- Chief Financial Officer

Well, I think we've commented that from a G&A perspective, obviously, we have a commitment to continue to decrease that level as well as scale it. And just say the first quarter typically had just a higher percentage of professional fees and accounting fees related to US audit. Those are a little higher this year probably that -- as a result of this, but nothing, material.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

And then the restatements didn't -- shouldn't have any impact on the credit facility you guys recut in 1Q, correct?

David K. Holeman -- Chief Financial Officer

That's right. They -- the restatements had no impact on the credit facility or any of the covenants. They were calculated in the same manner previously as they will be going forward.

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Okay. That's it from me. Thank you.

James C. Mastandrea -- Chairman and Chief Executive Officer

Thank you, John.

Operator

There are no further questions at this time. I would now like to turn the call back to management for any additional or closing remarks.

James C. Mastandrea -- Chairman and Chief Executive Officer

Yes. Thank you, operator and thank you all for joining us. Again I'd just like to go back and say that 2018 was a solid year for us, one that we had no less interest in driving the value of the portfolio than previous ones. The distractions are time consuming, as you all know. And we were able to overcome that with our tenacity and skill and experience we have in terms of this business. We're -- still remain very excited about our business model, we think that it answers the questions to many of the concerns that people have about the consumers. And we're starting to bring to our properties tenants with stronger balance sheet and also a longer work histories where they have opened up multiple locations with us.

So I thank you for your continued confidence and I think you're going to find 2019 to be very promising year for all of us, and really do appreciate your consideration and the loyalty you've given us in terms of being with us since our IPO of 2010. Thank you operator.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect.

Duration: 42 minutes

Call participants:

Kevin Reed -- Director of Investor Relations

James C. Mastandrea -- Chairman and Chief Executive Officer

David K. Holeman -- Chief Financial Officer

Craig Kucera -- B. Riley FBR Inc. -- Analyst

Anthony Hau -- SunTrust Robinson Humphrey -- Analyst

Unidentified Speaker --

John Massocca -- Ladenburg Thalmann & Co. -- Analyst

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

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